No perfect Ten for Packer

Stephen Mayne

James Packer has never particularly liked journalists and now he's reportedly appointed himself responsible for torpedoing one of the largest investments in television news the nation has seen for years.

Whilst it's very easy for Packer and his mates to background against Channel Ten for investing $20 million in 100 people to deliver continuous news programs from 5-7.30pm on weeknights, who is standing up for the journalistic profession?

Certainly not Communications Minister Stephen Conroy who made some disturbing comments on ABC television's Insiders program yesterday.

Firstly, after speaking with James Packer at Foxtel's 15th birthday bash in Sydney on Saturday night, Conroy flew to Melbourne on Sunday morning and told Barrie Cassidy the following:

''Well I think he's (James Packer) decided that he wants to get back into free-to-air television. I think he's got a foot in all the camps and he likes to have all the bases covered. There are some issues around competition and concentration that I think Graeme Samuel is looking at. So we wouldn't want to pre-empt the outcome of those. But I think James is a very, very savvy businessman and this is a very clever move.''

Surely it's only a clever move by a clever businessman if the important regulatory decisions Stephen Conroy is due to make in the coming weeks over sports broadcasting and the 75 per cent reach limit go in favour of the free to air networks.

Then we had Barrie Cassidy's question about Packer family control through teaming up with other Ten shareholders, which Conroy answered as follows:

''It's clear that I think James has got more support than just his own holding from all indications. So I think Graeme has got a real challenge there to make those decisions. But if, in an open share registry if one person has 19 per cent then there is a real situation where they could exercise a dominant control. So I don't think that's the case. I think there's more people behind James's bid than that.''

Packer is also said now to be getting closer to Kerry Stokes so it looks like a repeat of the situation when Channel Ten came out of receivership back in 1992 and Kerry Packer encouraged mates such as John Singleton and Robert Whyte to join the CanWest consortium.

The plan was to ensure Ten remained a low cost, weak competitor to his then dominant Channel Nine, although the sale was being handled by Malcolm Turnbull who by this point had fallen out with Packer over the fight for Fairfax in 1991.

Private equity pushes back

Fast forward to 2010 and we've got debt-laden private equity owners fattening up the Seven and Nine networks for a potential return to the public markets. The last thing they want is for Ten to invest heavily in news and current affairs, thereby challenging their traditional ratings dominance in the crucial 6-7 pm prime time slot.

So who are these ''people behind James' bid'' that Minister Conroy is spruiking?

Bermuda-based billionaire Bruce Gordon is the second-largest Ten shareholder with 13 per cent but is fundamentally conflicted after paying $270 million for Channel Nine in Perth and Adelaide three years ago.

He made some rare public comments at the Ten AGM held at Star City Casino last December and seemed quite naive about the basics of conflict of interest when expressing an interest in joining the board.

As the biggest Nine affiliate, including two capital city markets, Gordon shouldn't be allowed on the Ten board or to associate with James Packer if he is appointed to the Ten board.

Indeed, there's a fair argument that James Packer should be expressly banned from joining the Ten board given he is so close to the Channel Nine CEO David Gyngell.

After all, Gyngell was appointed to the board of Packer's Crown Ltd. in June so there is a clear on-going association above and beyond the history of being best man at each other's weddings.

Perpetual's long history with Packer

The final point of concern relates to Perpetual, Australia's biggest independent fund manager, which has a long history with James Packer.

The Perpetual equities portfolio is managed by John Sevior, who first broke through the 5 per cent disclosure threshold at Network Ten in July this year. What followed was unusually aggressive buying until the stake hit 12.62 per cent a few weeks ago, the largest percentage stake Perpetual has in any ASX100 company.

When Packer launched his raid on Ten last Monday, Perpetual was the largest shareholder and happily sold substantially into the offer, reducing its Ten holding by 4 percentage points to just 8.66 per cent.

Coincidentally, the world's most famous private equity firm KKR lobbed an unsolicited $2 billion takeover bid (including $230 million in debt) on Perpetual last Tuesday. Commentators immediately declared that Sevior and his stock-picking deputy Matt Williams were the kingmakers who would be able to negotiate lucrative deals for themselves.

And what is KKR's only other major investment in Australia at the moment? A 48 per cent stake in Seven Media Group in joint venture with the listed investment vehicle controlled by billionaire Kerry Stokes.

This scenario could see John Sevior negotiating his own lucrative deal with KKR whilst simultaneously supporting a James Packer board coup at Ten's December AGM designed to overturn the aggressively competitive news strategy being pursued by Ten's executive chairman Nick Falloon and CEO Grant Blackley.

KKR is tipped to be a seller of Seven in the next year or two and it certainly wouldn't want to see Channel Ten competing aggressively against its prime time 6 pm news or Today Tonight.

Fairfax connection

Perpetual's equities division under Sevior has a tendency to be involved in listed Packer family plays although it's not clear if this is partly because James Packer's chief lieutenant, John Alexander, used to be Sevior's boss at The Sydney Morning Herald.

Those with long memories will recall that Sevior, a well-regarded business journalist, was exposed by Media Watch for plagiarism in 1991 and duly sacked by The Age as was explained in this Crikey piece back in 2007.

However, John Alexander was the then editor of The SMH and threw Sevior a lifeline, plus a big pay rise the very next day to write the Abacus column. After doing that for three years, Sevior departed for Perpetual in 1994.

This Sevior profile by current SMH business editor Michael West in The Australian back in early 2007 included the following line: ''Thanks to Perpetual owning the biggest shareholding in PBL outside the Packer family, Sevior has become quite friendly with James Packer in recent years.''

Which, along with the John Alexander connection, raises the obvious question: was John Sevior James Packer's stalking horse at Ten?

Why did Perpetual go from 5 per cent of Ten to 12.62 per cent in less than three months and then sell down exactly 4 per cent at $1.50 into a corporate situation that saw the stock finish at $1.59 on Friday?

With people like advertising guru Harold Mitchell predicting James Packer will double his money in Ten, it seemed odd for Perpetual to offload almost one-third of its recently acquired holding.

Then again, Sevior has form in this regard. When Kerry Stokes came stalking James Packer's Consolidated Media Holdings last year, Perpetual was the second biggest shareholder with just over 10 per cent.

Sevior happily sold half his stake or about 36 million CMH shares to Stokes at $2.50 in July 2009. A few days later, after Stokes had revealed a 19 per cent stake, Perpetual sold about 20 million CMH shares to James Packer at $2.65.

With the stock now at $3.36, Perpetual would be about $50 million better off today if it had hung onto those original 72.5 million CMH shares which are now worth about $245 million.

Perpetual's key hand

Perpetual's other key investments will also be critical in future Packer moves.

Perpetual is the largest Tabcorp shareholder with a 9.2 per cent stake worth about $465 million. It has long campaigned for a demerger of Tabcorp's casinos business which was finally announced last week.

Perpetual supported Tabcorp's 1-for-9 capital raising at $6.25 with a $39 million cash injection and is already enjoying a good return after the stock rallied to finish at $7.45 on Friday.

Once Tabcorp's casinos business is separated out, many pundits are predicting a merger with Crown where Perpetual also sits on the register with a 5 per cent stake worth $320 million.

James Packer, John Alexander and John Sevior can clearly see the logic in creating one giant casino operator in the Australian market. If an all scrip merger was consummated between Crown and the Tabcorp casino business, Perpetual would finish up with a stake worth about $600 million, second only to James Packer whose 43 per cent stake in Crown is currently worth $2.8 billion.

However, you have to ask yourself whether it is appropriate for one billionaire to control Australia's five biggest casinos, the Ten Network, 50 per cent of Betfair, 50 per cent of Fox Sports and 25 per cent of Foxtel.

This is especially so at a time when there is unprecedented funding of Australian professional sport and sports broadcasting by gambling interests.

As the biggest per capita gamblers in the world and arguably the most sports-obsessed nation, is this really an appropriate combination of commercial interests to pursue in 2010?

For mine, ACCC chairman Graeme Samuel does indeed have a ``real challenge'' as identified by Senator Conroy and he should rise to that challenge by declaring that James Packer will not be permitted to join the Ten board.

At the very least, Packer would need to sever contact with Nine CEO David Gyngell and not rely on the 13 per cent stake in Ten owned by Bruce Gordon to get himself elected.

Stephen Mayne is a shareholder activist who ran for the Ten board last year on a platform opposing insider capital raisings with institutions and is contemplating running again this year. He publishes the corporate governance ezine www.maynereport.com and can be reached on Stephen@maynereport.com.